Robin Mills, in his column of August 4, takes exception to the thesis, proposed by the University of California at San Diego economist James Hamilton and me, that oil prices are likely to stay high. This is part of a larger debate, not only about the prospects for oil supply growth and oil prices, but for strategic options for countries such as the UAE and major oil companies such as Exxon and Chevron.
The oil price debate can be boiled down to three schools of thought.
Two of the three analytical approaches are demand-driven and can be respectively associated with Citi Commodities Research, on the one hand, and BP and the OECD’s International Energy Agency (IEA), on the other.
Citi takes the view that oil demand is thin, that there is potential upside in the liquids supply, and that fuel substitution will soon begin to siphon demand from oil-based fuels. Thus, oil prices are likely to collapse, with Ed Morse, the head of commodities research at Citi, typically forecasting oil prices in the US$65 to $90 a barrel range, Brent basis.
These numbers have not been realised to date. Nevertheless, if one took this view, then investing in upstream capacity hardly makes sense. Thus, the UAE or the oil majors should take an essentially defensive position in the market.
BP and the IEA have another version of this argument, in which supply outpaces demand, but high prices remain. BP, in its Energy Outlook 2035 (January 2014), elaborates on this perspective, stating: “The market requirement for Opec crude is not expected to reach today’s levels for another decade before rebounding. While we believe that Opec members will be able to maintain discipline despite high levels of spare capacity, cohesion of the group is a key oil market uncertainty.”
BP, like Citi, sees demand as thin and vulnerable to increased supply. Prices do not collapse, however, due to Opec's long-term willingness to hold high levels of spare capacity.
Thus, if the UAE accepted the BP point of view, prices remain high, but alas UAE production volumes will fall. Again, this is a bearish signal and would lead the UAE to take an essentially defensive position with respect to upstream investments.
What is the reality? Is the UAE’s strategy aligned with BP or Citi’s analysis? Not to appearances. UAE oil and liquids production are both at record highs. Oil production has increased modestly, but total liquids production is up 21 per cent in the last decade, and up 4.6 per cent in just the last two years.
Will this trend be reversed? Does the UAE plan to be more defensive in the future? In fact, no. Production capacity in the Emirates is slated to increase by 23 per cent to 3.5 million barrels per day (bpd) by 2017. Thus, UAE production and capacity plans suggest that decision-makers there assume prices and volumes demanded will continue to be robust. This implies that either UAE decision-makers do not believe Citi and BP, or they are making bad decisions.
On the other hand, using a supply-constrained approach UAE strategy makes sense. This school of thought argues that supply continues to lag demand, leading oil prices to rise to the full level that the global economy will bear (the “carrying capacity” price). From this point, prices will be difficult to increase. But exploration and production costs will continue to rise, and this will limit supply, particularly from the oil majors and conventional sources.
In this interpretation, there is plenty of demand, but the potential for only modest oil price appreciation. The oil system in this view is price-stable and volume-insensitive, and the UAE is correctly responding to market pressures by raising capacity and production. Indeed, it may have latitude to increase production above current targets.
The supply-constrained model is seeing a test right now. Shale oil growth in the US is simply astounding, with US supply up 1.5 million bpd in the last year. Add Canada, and North American production is up a phenomenal 1.8 million bpd last month compared to a year ago, even as the Libyans have re-entered the market in a modest way.
According to industry sources, the rest of Opec has yet to respond with production adjustments. Meanwhile, European and Japanese economic data continue to disappoint. Brent has been weak, but is holding above $100 a barrel, even in the face of a supply onslaught and feeble demand from advanced countries.
If the supply-constrained theory is right, Brent oil prices should tend to hold near recent levels. A bigger supply surge might depress oil prices for a time, but latent demand should quickly soak up any excess supply, returning prices to the level of the past three years. If that’s the case, the UAE will have made the right call to increase its production capacity. The world remains short on oil, and the UAE is stepping up to provide it.
Steven Kopits is the managing director of Princeton Energy Advisors and can be reached at steven.kopits@prienga.com. He is writing a book on supply-constrained oil markets analysis.
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Japan 30-10 Russia
Tries: Matsushima (3), Labuschange | Golosnitsky
Conversions: Tamura, Matsuda | Kushnarev
Penalties: Tamura (2) | Kushnarev
Company%20Profile
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The specs
Engine: 1.5-litre 4-cylinder petrol
Power: 154bhp
Torque: 250Nm
Transmission: 7-speed automatic with 8-speed sports option
Price: From Dh79,600
On sale: Now
The specs
Engine: Long-range single or dual motor with 200kW or 400kW battery
Transmission: Single-speed automatic
Max touring range: 620km / 590km
Price: From Dh250,000 (estimated)
The specs
Engine: 2-litre or 3-litre 4Motion all-wheel-drive Power: 250Nm (2-litre); 340 (3-litre) Torque: 450Nm Transmission: 8-speed automatic Starting price: From Dh212,000 On sale: Now
Confirmed%20bouts%20(more%20to%20be%20added)
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The Perfect Couple
Starring: Nicole Kidman, Liev Schreiber, Jack Reynor
Creator: Jenna Lamia
Rating: 3/5
Company%20Profile
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The%20specs
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COMPANY PROFILE
Founders: Sebastian Stefan, Sebastian Morar and Claudia Pacurar
Based: Dubai, UAE
Founded: 2014
Number of employees: 36
Sector: Logistics
Raised: $2.5 million
Investors: DP World, Prime Venture Partners and family offices in Saudi Arabia and the UAE
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The biog
Name: Maitha Qambar
Age: 24
Emirate: Abu Dhabi
Education: Master’s Degree
Favourite hobby: Reading
She says: “Everyone has a purpose in life and everyone learns from their experiences”
BEETLEJUICE BEETLEJUICE
Starring: Winona Ryder, Michael Keaton, Jenny Ortega
Director: Tim Burton
Rating: 3/5
The specs
Engine: 1.5-litre turbo
Power: 181hp
Torque: 230Nm
Transmission: 6-speed automatic
Starting price: Dh79,000
On sale: Now
The%20specs
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COMPANY%20PROFILE
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FA CUP FINAL
Manchester City 6
(D Silva 26', Sterling 38', 81', 87', De Bruyne 61', Jesus 68')
Watford 0
Man of the match: Bernardo Silva (Manchester City)
Company Profile
Name: Thndr
Started: 2019
Co-founders: Ahmad Hammouda and Seif Amr
Sector: FinTech
Headquarters: Egypt
UAE base: Hub71, Abu Dhabi
Current number of staff: More than 150
Funds raised: $22 million
COMPANY%20PROFILE
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The specs: 2017 Lotus Evora Sport 410
Price, base / as tested Dh395,000 / Dh420,000
Engine 3.5L V6
Transmission Six-speed manual
Power 410hp @ 7,000rpm
Torque 420Nm @ 3,500rpm
Fuel economy, combined 9.7L / 100km
UAE currency: the story behind the money in your pockets
Some of Darwish's last words
"They see their tomorrows slipping out of their reach. And though it seems to them that everything outside this reality is heaven, yet they do not want to go to that heaven. They stay, because they are afflicted with hope." - Mahmoud Darwish, to attendees of the Palestine Festival of Literature, 2008
His life in brief: Born in a village near Galilee, he lived in exile for most of his life and started writing poetry after high school. He was arrested several times by Israel for what were deemed to be inciteful poems. Most of his work focused on the love and yearning for his homeland, and he was regarded the Palestinian poet of resistance. Over the course of his life, he published more than 30 poetry collections and books of prose, with his work translated into more than 20 languages. Many of his poems were set to music by Arab composers, most significantly Marcel Khalife. Darwish died on August 9, 2008 after undergoing heart surgery in the United States. He was later buried in Ramallah where a shrine was erected in his honour.
Company%20Profile
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If you go...
Fly from Dubai or Abu Dhabi to Chiang Mai in Thailand, via Bangkok, before taking a five-hour bus ride across the Laos border to Huay Xai. The land border crossing at Huay Xai is a well-trodden route, meaning entry is swift, though travellers should be aware of visa requirements for both countries.
Flights from Dubai start at Dh4,000 return with Emirates, while Etihad flights from Abu Dhabi start at Dh2,000. Local buses can be booked in Chiang Mai from around Dh50
Hidden killer
Sepsis arises when the body tries to fight an infection but damages its own tissue and organs in the process.
The World Health Organisation estimates it affects about 30 million people each year and that about six million die.
Of those about three million are newborns and 1.2 are young children.
Patients with septic shock must often have limbs amputated if clots in their limbs prevent blood flow, causing the limbs to die.
Campaigners say the condition is often diagnosed far too late by medical professionals and that many patients wait too long to seek treatment, confusing the symptoms with flu.
The bio
Job: Coder, website designer and chief executive, Trinet solutions
School: Year 8 pupil at Elite English School in Abu Hail, Deira
Role Models: Mark Zuckerberg and Elon Musk
Dream City: San Francisco
Hometown: Dubai
City of birth: Thiruvilla, Kerala
SPECS
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